PRESS BRIEFING BY
CHIEF OF STAFF JOHN PODESTA,
DEPUTY CHIEF OF STAFF MARIA ECHAVESTE,
NATIONAL ECONOMIC ADVISOR GENE SPERLING,
NATIONAL DOMESTIC POLICY ADVISOR BRUCE REED,
AND NATIONAL SECURITY ADVISOR SANDY BERGER
ON THE PRESIDENT'S STATE OF THE UNION ADDRESS
The Roosevelt Room

10:13 A.M. EST

MR. PODESTA: Maria Echaveste, who has been running the
process to build the State of the Union, putting together the policy
consults and to really work with the process of getting the drafts and
working with the speech writers and getting the prep done, will be in.
Obviously, Gene is here -- Gene Sperling and Bruce Reed are here. And
Sandy Berger will join us at the end and talk about the foreign policy
sections of the speech.

I think that the President will begin by talking about this
great moment of prosperity and great moment of promise for the country.
He's going to spend some time talking about the strategy that he and the
Vice President brought to town in 1993, a strategy that has had proven
results. We'll review that very briefly. He will challenge the
Congress to get on with the unfinished business, to pass the patients'
bill of rights, to pass the minimum wage, and to deal with critical
issues that were left behind from last year's unfinished business.

But he's going to spend the bulk of his time challenging the
country to take the long look ahead, to think about the big challenges
facing the country, and then lay down a specific program of what we can
do this year to go down the path that he will lay out. It will be
consistent with his themes that he has talked so much about, of
opportunity, responsibility and community. You can expect to hear those
words.

Q I'm sorry, say those words again. (Laughter.)

MR. PODESTA: We're going to -- he'll talk about continuing on
the path of fiscal discipline, continuing to pay down the debt.
Obviously yesterday -- or a few days ago -- I can't remember any more --

Q The day before.

MR. PODESTA: -- discuss the fact that our budget will retire
the entire federal publicly-held debt by 2013; challenge the Congress to
extend the solvency of Medicare to 2050; challenge the Congress to
modernize Medicare, to extend its solvency, and to add a much needed
prescription drug benefit.

I think that -- there are strong sections on the environment.
There is as strong section on science and technology. The President
spoke at Cal Tech here last Friday, and I think he will talk about how
investments in science and technology can power the economy forward and
also do things like come up with new cures for diseases like cancer and
diabetes, Alzheimer's and AIDS.

And then I think he'll spend some time this year talking about
some new issues that have come up because of the wiring of the global
economy and the growth of the Internet, how do we close the digital
divide. He'll talk about the challenge to privacy in medical records
and financial records, and the new threats that come, the new national
security threats, which Sandy will talk a little bit more about later,
that are the result of this new interconnected world, and networked
world.

But that's kind of the structure of what he will be doing
tonight. Maria, if you want to take a second, just talk a little bit
about --

MS. ECHAVESTE: Sure, just the process of how we got here.
And the first thing is that all those policy ideas, even those that are
a sentence long, represents a lot hard work by a lot of people. With
Gene and Bruce, and George Frampton at the Council on Environmental
Quality, and Neal Lane at the OSTP, Office of Science Technology and
Policy.

We did get a little late start this year, because we didn't
finish the budget until November. But people had been working, and
after the budget was done, put together some policy memos for the
President, ideas to get some feedback, see what the President is
interested in doing. And then we had a couple meetings with him in
which he, as they -- the budget process and the State of the Union
process sort of have to dovetail together and work, coordinated.

And then we sent an outline. Terry Edmonds, who, as you know,
is our chief speechwriter, and he got his team together to send a draft
that, yes, was very, very long. But we wanted to make sure everything
was in there. And then we began the very important process of
tightening, editing. And he has been working on it. And we keep
getting back marked-up copies, and we've had several run-throughs, of
which our -- it's not just simply reading the speech, it's thinking
through, is this what we want to emphasize? Is this what we want to
stress? And so I think we've had several really good sessions. We'll
start again this afternoon and be ready for tonight.

The only other thing is, the other thing that -- we're the
repository for innumerable requests for, special requests for mentions
-- I've got eight pages, single-spaced, of everybody who's said, please
have him say this.

MR. PODESTA: We may be making a lot of enemies tonight.
(Laughter.)

MS. ECHAVESTE: Yes, exactly, and they all know my name.
(Laughter.)

Q You mean people in the public or people in the government
context?

MS. ECHAVESTE: Actually, across the board. It's really quite
interesting how many people --

MR. PODESTA: A few members of Congress.

MS. ECHAVESTE: So I'll just stop there and hand it over to
Bruce.

MR. REED: As John said, tonight the President will propose an
ambition Third Way agenda. And we are confident we can get it done this
year. Tonight's speech follows a familiar formula restoring the vital
center by promoting opportunity and responsibility. Let me go over some
of the major sections of the speech.

First, the President will call for a 21st century revolution
in education and lay out a sweeping education plan. He demands more
from our schools and invests more in them. And he is proposing an
unprecedented increase in education spending, $4.5 billion in new
spending, as well as a new $30-billion college opportunity tax cut that
he announced last week.

He's also calling for an unprecedented level of
accountability. The major education initiatives are, first, doubling
funding for after-school to $1 billion, which will allow us to provide
after-school and summer school to 2.5 million kids, including every
child in every failing school in America. The largest increase in Head
Start funding in history, $1 billion. That will take the program from
$5.3 billion to $6.3 billion. We've already nearly doubled money for
Head Start since we took office in '93. These new investments will
build a foundation for our long-term goal of universal pre-school for
every child.

He's going to propose doubling funding to turn around failing
schools. Last year he called on Congress to pass his fund to turn
around failing schools or shut them down. Congress gave us $134 million
in the last budget to do that. We're doubling that to $250 million this
year.

He has a new proposal to reward states for making progress on
standard achievement; a $1-billion teacher quality initiative, including
new proposals on higher pay for teachers in return for higher pay for
teachers in return for higher standards.

He's going to propose a $450-million increase in class size
funding, which will allow us to get halfway to our goal of 100,000
teachers to lower class size in the early grades. He'll talk about his
school construction initiative, to provide urgent repairs to 5,000
schools a year, and his tax credit to build or modernize 6,000 schools.
He'll talk about charter schools. And again, he'll talk about the steps
we've taken to expand access to college, and finally open the doors of
four years of college to all.

And we believe we can get this education plan done. We have
doubled spending on education and training over the last seven years.
Five years ago, Republicans were talking about dismantling the
Department of Education. They don't talk that way anymore. Last year,
they joined with us in enacting a record education budget, and we think
that we'll be able to work together to enact these proposals this year.

The second big part of the speech is on rewarding work and
family, with the goal of helping parents succeed at work and at home.
He has already proposed a major expansion of the Earned Income Tax
Credit. In tonight's speech, he'll have a new proposal to make the
dependent care tax credit refundable. This helps cover child care
costs, and it will enable the typical family of four with $25,000 in
income to receive up to $2,400 to pay for child care.

He'll talk about the health care plan that he unveiled earlier
this month to expand -- the CHIP program to cover parents, together with
CHIP for kids. This new plan will allow us to cover nearly one-quarter
of the uninsured in America. He will again call on Congress to join
with him to strengthen and modernize Medicare, and make an impassioned
plea for affordable prescription drugs for all seniors, and passing it
this year.

He'll add a fatherhood agenda, including tough new child
support measures, but also helping put fathers who have child support to
work to pay it off.

The third big section of the speech is on crime and guns, with
the goal of making America the safest big country on Earth; calling on
Congress to finish the job of putting 50,000 more police on the street;
passing the common-sense gun measure that has been tied up in conference
for the past six months. And Tom Mauser (spelling), whose son Daniel
was killed in Columbine, will be in the First Lady's box, and so that's
a section of the speech to watch out for.

He'll talk about support for smart guns and increased gun
prosecutions and some other measures. And then, in a moment Gene will
want to talk about the New Markets section of the speech, which is also
quite expansive.

John already talked about the environment, science and
technology. The speech closes with a section on community, laying out a
number of steps to build one America. He's proposes a new tax credit
for charities, which Gene can talk about in a minute; calls on Congress
to finally pass the hate crimes bill. And elsewhere in the speech,
there is a strong plea to Congress to finish the unfinished business of
the last century, passing campaign finance reform; passing a real
patients' bill of rights; finally raising the minimum wage.

It's a big agenda, but we think we can get it done this year.
Four years ago, everybody said we wouldn't be able to get anything done
because it was an election year, but we went on to pass
Kennedy-Kassebaum, raise the minimum wage, enact welfare reform. And
the President will signal tonight that with or without help from
Congress, he is determined to use his executive authority and the force
of his agenda to get as much done as he can until the day we leave.

MR. SPERLING: Clearly the President will stress that much of
what is good in the American economy and much of what is good in our
budget estimates and budget surplus emanates from the fiscal discipline
the country has exhibited over the last seven, years, and that certainly
that has been an integral piece in what will soon be the longest
expansion in our country's history.

He will certainly remind people that he stood before Congress
two years ago and asked them to maintain their fiscal discipline in
saving the surplus, and that because we have done so, and often with the
President's veto pen, America has experienced back-to-back surpluses,
and that if we stay on that path -- he will challenge Congress to stay
on that path so that we can pay off the external national debt entirely
by 2013, the first time since 1835.

He will, as he has been, stress that we should get a
bipartisan down payment this year on Social Security reform by simply
taking what has been an almost uniform commitment now to use the Social
Security surpluses for debt reduction, and by simply doing the next
logical step, which is ensuring that the interest savings from that debt
reduction go not to other spending or tax cut measures, but to this
purpose, to protecting Social Security.

He will also stress the importance of us reserving a
substantial amount of the surplus and having new reforms, most
dramatically prescription drugs, and both extending the solvency of
Medicare to 2025 and, as I said, in offering the voluntary universal
prescription drug proposal. He will make clear that he is allocating
nearly $400 billion of the on-budget surplus for the purpose of
extending the solvency of Medicare and for prescription drugs.

And finally, on the fiscal discipline side, he will, as he has
in the past, stress that while there are many strong, bold and important
initiatives, that all of this must be done in the context of the fiscal
discipline and path of debt reduction that has brought us to the point
we're at.

As Bruce mentioned, he will make a special effort, as he has
so often, to stress that now is the time to make sure we are including
all communities in our country in our prosperity. He'll stress his New
Markets Initiative, how he's doubled the proposal. He will make clear
his appreciation to Speaker Hastert for joining him in Chicago and
pledging to work together on bipartisan legislation. And he will
mention his new New Markets tour designed to close the digital divide
this spring.

He will also make very clear that on open markets, that
America must go forward, that we must have a new consensus on open
trade; and that he will vigorously seek to achieve passage of China
permanent NTR, as well as the CBI and Africa Trade Initiatives.

I have -- we are also putting out today more of our tax cut
initiative. And I'll do that briefly, but I could go on as long as the
President's State of the Union if I went into all the details. So I'll
save some for your questions and I can be available later.

I think the overall context that the President has is that his
overall tax cut will be approximately the same size as last year. We
feel that there can and should be targeted tax cuts to address needs,
savings, health care, education, of rewarding work, but they need to be
done in a way that stays on the path of fiscal prudence and paying off
the national debt.

He will propose today, as part of that package, a new RSA,
retirement savings account. And this builds off what the President
called upon in the '92 election, the IDAs, individual development
accounts. It's also, in a sense, a form of the USA account. They are
all geared at the same basic goal, which is that we do far too little to
encourage lower and moderate-income families in our country to save, to
accumulate wealth, and save for a first home and a dignified retirement.

Of the nearly $100 billion that we offer in tax expenditures
every single year for retirement and savings initiatives, only $2
billion goes to families in the bottom 40 percent of the tax bracket.
The families that struggle to go paycheck to paycheck, that need the
most incentives to save, get the least incentives in our current system.
And this President has made this a priority.

There was a lot of support last year in the USA account, but a
lot of feeling that at a more manageable -- that people wanted more
diversity in the package. This would be a $70 billion initiative, and
what it would essentially do is for lower and moderate income families,
when they started a new account at $100, they would be matched up to
$1,000 for their contributions. So a family could contribute $1,000 and
be matched $1,000. And the first $100 they put in, they would get an
extra $100 match as an incentive to start these accounts.

These tax credits would go to the financial institution or the
employer, so the match would go to the employer who would provide these
funds. A family -- an individual who did this for his full life would
accumulate $266,000 in savings if they utilized it to its full extent.

There is also, in an effort to do something about the fact
that only 18 percent of people who work for small businesses have
employer-provided pensions, we have a 50-percent tax credit for small
businesses who provide automatic pensions to their
non-highly-compensated employees. Together those two parts cost about
$71 billion.

In addition, the President will propose a targeted marriage
penalty tax relief. This provision, when phased in, will mean that the
standard deduction for a married couple where both parents are working
would be double the standard deduction of a single individual deduction.
So, in other words, a married couple who both are working would have the
same size standard deduction as if they were each working and filing
individually.

In addition, in 2005 we would expand for all couples, whether
or not they were facing a marriage penalty or not, a $500 increase in
the standard deduction. This would cost $45 billion over 10 years and
help 42 million families.

As Bruce mentioned, we are also expanding the child care
dependent tax credit, expanding and making it refundable. And as Bruce
said, what so many people have stressed is that however well-intentioned
the dependant child care tax credit is for the families particularly
making under $30,000, offering the tax credit when many of them have no
tax liability does little to deal with what is an enormous burden and
disincentive to work for many families, which is the high cost of child
care. By both expanding the child care dependent tax credit and making
it refundable, it will be a major piece of the President's overall
agenda to take away the barriers to work for families who are trying to
get into the middle class.

Finally, as Bruce mentioned, building off the Philanthropy
Conference that the First Lady and the President did at the White House,
we'll have three provisions that will encourage charitable giving. One
that Bruce Reed and the First Lady's Office have worked on would say
that for people who don't itemize, that 50 percent of their
contributions over $500 they'd get a credit for. So this would allow
the majority of Americans who do not itemize to also share the notion of
getting deductions for charitable contributions. In addition, we would
make things easier for foundations. And the third provision would allow
for larger amounts of stock to be donated by individuals without hitting
their income cap.

So those are the provisions we're putting out that we have not
put out so far.

Q Gene, how does the stock conversion work for charities?

MR. PODESTA: There's a 30 percent limit right now.

Q Would you raise that?

MR. SPERLING: We are raising that to 50 percent. And this is
something the people in the philanthropy community feel is very
important to them, that there are many people who have accumulated
significant wealth, stock wealth, but are discouraged from giving
because they would come up against the 30 percent cap. Many of the
foundations and philanthropy advocates believe this would get them
greater access to some of the new wealth that's been created in the last
five years.

Q And that's parity with cash now?

MR. SPERLING: Yes.

Q Gene, could you tell us -- you've got a $70 billion here, a
$45 billion there -- if you add up all these things, all the President's
proposals, the different education and tax initiatives, what does it all
come up to?

MR. SPERLING: It will be approximately the same as last year,
which would be that there would be a net tax cut of in the range of $250
billion. So in other words, it would be --

Q For 2001?

MR. SPERLING: For the next 10 years.

Q You said it's a net?

MR. SPERLING: That's net, that's right.

Q Does that mean that he still has some tax increases in
loophole closures?

MR. SPERLING: We have a significant package addressing the
unfair use of tax havens, shelters, loopholes that Treasury has worked
on, and that will be in this package. When you net that out, the net
tax cut, or the amount coming out of the on-budget surplus would be
around $250 billion.

Q And the cost of the new initiatives in education and
training and across the board, what would they be?

MR. SPERLING: I would say that -- we'll obviously have all
the details out on February 7th, but you will see a gross tax cut in the
range of $350 billion, and a net tax cut in a range of $250 billion.
But if you're asking how much money are we dedicating from the
over-budget surplus to tax cuts, it will be in the range of $250
billion.

Q Is there a tobacco tax increase in there?

MR. REED: We'll put out the details on the tobacco plan with
the budget. Our proposal this year focuses primarily on holding tobacco
companies accountable for reducing youth smoking.

Q A modified look back?

MR. REED: There may be something like that in there.

Q But there is no 55 cent per pack tax increase?

MR. REED: As I said, we'll put out the details. It will be
available February 7th.

MR. PODESTA: I want to add one thing to Gene's -- I don't
think anybody mentioned this, but the other three things, since
everybody is interested in tax cuts, that we're talking about doing is,
a $3,000 long-term care tax cut; a tax cut to help people buy into
Medicare. The President has proposed that people 55 to 64 be able to
buy into Medicare, and we'll provide a 25-percent tax credit to make
that more manageable, and a tax credit who are in COBRA to keep their
insurance when they're in between jobs.

MR. SPERLING: Another one that maybe some people might not
have noticed was that we also put out something to deal with the relief
from the alternative minimum tax. And I know many of you have written
that. And the problem that is basically happening is that families with
a large number of children, who are taking a large number of deductions,
are starting to hit up against an alternative minimum tax that was
designed to address wealthy taxpayers and corporations, not families
which simply have lots of deductions because they have several children.
And so this initiative gradually takes out -- exempts the child
dependent exemptions from counting against the alternative minimum tax
credit.

Q Gene, two things. Can you give us a ballpark figure on the
tax -- shelter loophole closings? And a few minutes ago, you said that
there would be an on-budget surplus for extending the life of Medicare
and prescription drugs. Can you give us a breakdown there, in figures?

MR. SPERLING: About three-quarters would address solvency.

Q Okay, so roughly $100 billion for prescription drugs?

MR. SPERLING: Again, we'll give out all the details. But
again, those are net numbers, so they don't -- so you have to remember
that there are some offsets in savings. So what we're giving out is,
we'll give you a sense of what is the take from the on-budget surplus.

Q And the loopholes, the shelters --

MR. SPERLING: I think you'll find it in the range of eight to
ten a year.

Q Gene, is there any kind of threshold on the marriage penalty
deduction?

MR. SPERLING: Let's see. I don't think so.

Q So, in essence, you're wiping out the marriage penalty?

MR. SPERLING: I don't think -- people have different
descriptions of the marriage penalty. There are about 45 million
couples who are affected by the differential treatment for a family
versus an individual. Of those, about 25 million get a marriage bonus;
they do better. And about 20 million do worse.

The system was essentially set up at a time when there was a
single earner. So basically, if you have a single earner, the different
rates are a winner for you. The people who actually face a penalty tend
to be the reason -- two people working who are making near the same
amount of money. And there's about 20 million of them. One of the ways
to address that is by making sure that their standard deduction is no
worse because they're filing jointly than it would be if they were
filing individually.

There's another issue, which is, where the thresholds hit, 15
percent, 28 percent, et cetera. So there are very different variations
of what people consider the marriage penalty. We feel ours is a more
targeted one, because it tries to address those families that actually
are experiencing a marriage penalty , as opposed to some which just go
across the board, and actually spend tens of billions giving more to
families that are already -- the 25 million who are already getting the
marriage bonus.

Q Gene, I don't quite understand the numbers you're giving on
the gross increase in the President's spending proposal. What is the
total on the President's spending proposal?

MR. SPERLING: Again, the net tax cut is $250 billion. The
gross would be between $80 billion and $100 billion higher than that.
But we'll give out all the details when we put out our budget.

Q And that's for all of his new spending initiatives?

MR. SPERLING: I'm sorry, that's for the tax cut.

Q I'm talking about the initiatives.

MR. SPERLING: Let me say this. Last year, the President had
a gross tax cut of about $322 billion and a net tax cut of $250 billion.
This will be in the same range. The gross tax cut will be slightly
higher because there are more loophole closures.

Q We were asking about appropriated funds. The cost of new
initiatives and the figure that's out that's been in the press anyway is
about $150 billion. Do you have a figure, or is that the figure --
about the new initiatives, the cost of the new initiatives?

MR. SPERLING: I don't know what people are adding up, but you
can think of it in the following way. You're taking the entire Social
Security surplus and putting that off limits to pay down the debt. Then
there's an on-budget surplus which is in the ballpark of what I think
most budget experts thought was the realistic CBO estimate that came
out. A large chunk of that also goes to additional debt reduction to
deal with Medicare. Anything else we're doing kind of new and above
would have to fit in the remaining on-budget surplus.

We've described a lot of that so far -- $250-billion,
approximately, net tax cut, and you've seen some of our health care
initiatives. So I don't think there's any great mystery. I think we've
talked about discretionary initiatives, it's a little difficult because
sometimes one discretionary count's up and one's down, so it's not
necessarily new additional spending.

Q Give us the gross and then give us the net, after offsets.

MR. SPERLING: On discretionary.

Q Just tell us how much you're going to spend overall and how
many offsets --

MR. SPERLING: I just want to make one thing clear. This is
not a budget briefing. We're getting done February 7th. What we're
doing is, we've rolled out different levels of our initiatives and we're
putting out another chunk of them today, and I think that most of the
major initiatives have been put out. I don't think it's hard to figure
out what the overall parameters are, because it has to fit within the
on-budget surplus.

Q Let me ask you on Social Security, Gene, how much of the
interest savings will be dedicated to shoring up Social Security?

MR. SPERLING: The way that our plan works is that we take the
entire Social Security surplus and pay down the debt during this 10-year
period. That creates significant dramatic interest savings for the
government for years. What we do is say that those interest savings,
having been created by debt reduction from the Social Security surplus,
should be committed back to Social Security. That would allow us to
extend the solvency of Social Security to 2050.

The point that the President has made repeatedly is that
Republicans continue to use the phrase Social Security lockbox, which
might give somebody the impression that somehow this was actually
specifically benefitting Social Security. This may be committing Social
Security surplus for debt reduction, but the benefits of that debt
reduction remain completely unallocated under Republican initiatives.
Not a single penny is committed to extending the life of Social Security
by a single day.

When the President talks about a Social Security lockbox, or
paying down the debt for Social Security, he's taking the interest
savings after 10 years and ensuring that that's extending the solvency
of Social Security until at least 2050.

And what the President said is that while we still need to
have bipartisan process to go beyond, this is a bipartisan down payment
we can do so we can at least extend the life of Social Security to 2050.
We have never gotten a good response as to why Republicans would not
support this reasonable provision.

Q John, can you talk about, first of all, what the President
will say about the Vice President in the State of the Union, and
secondly, is the State of the Union that the President gives this year
different in some fundamental way since it's his last year from the ones
he's given the previous seven years?

MR. PODESTA: Well, I think that you will hear him talk about
the Vice President in much the same way he has in the past seven years.
He's been his partner in this from the very beginning. He's led on
certain issues. But I think you will see that it will be about the same
as you've heard him speak about the Vice President in the past seven
years on the critical issues I think he's played a leadership role on.
Obviously, the Vice President has been the President's partner on
virtually everything, but there are certain key questions where he's up
front and has played a leadership role.

With regard to whether this is a different State of the Union,
obviously it's the first State of the Union of the new millennium, as
well as the President's last State of the Union. And I think that he
will try to present to the American public a vision about where the
country can go, what the big challenges are, taking, as Teddy Roosevelt
said, that long look ahead, and then use that framework to lay down some
concrete steps we can take right now, this year, to move down the path
of greater prosperity and greater opportunity.

Q How much closer to the next millennium is this speech going
to take us? (Laughter.)

MR. PODESTA: I think his horizons are large, but they're kind
of consistent with human thought. No, he'll be talking about the
challenges that we face from -- Sandy just came in -- from both the
national security perspective and the economic perspective, from the
education and health care, over the course of the next four or five
years.

Q One thing on the numbers. I heard at one point that to
extend the solvency of Medicare to 2050?

MR. SPERLING: At least 2050, yes. Oh, I'm sorry. Did you
say Medicare or Social Security?

MR. PODESTA: Social Security to at least 2050; Medicare to at
least 2025.

Q You mentioned that the President plans to use his executive
authority as much as possible to get things done, with or without
Congress in the coming year. Can you elaborate on that a little bit?

MR. REED: Sure. Well, in a host of areas over the last seven
years, the President has used his executive authority to get things done
for the American people with executive orders on privacy, on child
support, on welfare reform, on medical errors and so on. We intend to
continue doing that, for two reasons -- first, to get things done, to
break the logjam in Washington, to not wait for the legislative process;
but also our experience has been that every step we take through
executive action also helps to build pressure for Congress to take
action as well.

Q Can I just refine my question? Is this an attempt to expand
the authority of the presidency itself?

MR. REED: It's an attempt to get things done for the American
people.

MR. PODESTA: Let me give you another example. In 1996, when
the Congress passed the Kennedy-Kassebaum bill, also an election year,
they gave themselves a three-year deadline to put in place comprehensive
medical privacy bills. They spent three years, they couldn't get the
job done, they were gridlocked by various interests on Capitol Hill.
The President made a proposal. That triggered presidential authority
under the statute to provide real protection for mental records in this
new electronic era. The President seized that authority, proposed
regulations, and will finish the job this year and provide real privacy
for medical records in this electronic world this year.

MR. BERGER: The second half of the speech is on national
security. (Laughter.) What the President will do this evening is set
forth the broad challenges that we face in an increasingly globalized
world, at a time when we are at the zenith of our power and influence,
to promote peace and democracy and a more widely-shared well-being.
He'll talk about four or five of those broad challenges. One is to
encourage the long-term transition of our former adversaries, Russia and
China, into stable, prosperous democratic nations.

We have a great stake in supporting democracy and economic
reform in Russia, even as it struggles with the legacy of communism,
with a self-defeating war in Chechnya. The President will call for
greater efforts with Russia on reducing the nuclear threat, as well as
working cooperatively with Russia on threat reduction programs in Russia
that will safeguard nuclear weapons and nuclear materials.

As for China, the best thing we can do to counter the
government of China's illusion that it can foster stability at the
expense of freedom is to bring China into the WTO and expose it to the
kinds of forces of change that will occur. And, of course, that would
be a big issue for this Congress, hopefully earlier rather than later in
the year.

The second challenge is to protect our security from conflicts
in a world that threaten our interests and our values. The President's
obviously made enormous progress over the years in helping to bring
peace to the Middle East and stopping two brutal wars in the Balkans,
and advancing the peace process in Northern Ireland this year, and
getting talks going on Cyprus.

Next year -- or this year is one of enormous challenge,
particularly in trying to achieve a comprehensive Middle East peace and
building the institutions of autonomy in Kosovo, and hopefully moving
the process forward on Cyprus.

The third challenge the President will talk about is keeping
the inexorable march of destructive technology from giving terrorists
and hostile nations the means to undermine our defense. That means
restraining threats from North Korea, from Iraq and Iran. It means
spending more on preparing for biological and chemical threats to the
United States. It means spending more and doing more on protecting our
cyber-systems from hostile attack.

And finally, the President will speak about the challenge of
narrowing the huge gap between rich and poor in the world, which is
actually in some respects getting larger -- 1.3 billion people now live
on one dollar a day or less. The President will talk about a number of
initiatives.

Last year, he joined with Congress to do a very major debt
reduction program, with our allies doing the same. We need to move that
forward. We need to help countries build their democracies, fight
drugs. The President will be submitting a $1.6 billion, two-year
program to help Colombia fight the narco-traffickers.

There is in this budget an initiative for helping fight AIDS
in the developing world, particularly in Africa, $150 million, and a new
initiative the President will announce tonight which will provide tax
incentives for private industry to develop vaccines for malaria,
tuberculosis, and HIV/AIDS, that are particularly directed towards
poorer countries where there is not the wealth and income to sustain the
research on this kind of medical advance.

In general, the President will make a strong plea for
leadership, American engagement, bipartisan, in the year ahead in
foreign policy.

Q How much tax break on the vaccination?

MR. BERGER: It will be $1 billion over the decade, which will
be essentially a dollar of tax credit for every dollar that is purchased
by certified organizations that are distributing this in the developing
world, for particularly new vaccines that are developed as a result of
this initiative, in those three areas of malaria, TB and HIV/AIDS.

Q So it's actually -- the tax break goes after the vaccine has
been developed to purchase it, as opposed to R&D for the pharmaceutical
company?

MR. BERGER: The tax break -- it will be in some ways
iterative. The tax credit will create a market for developing new
vaccines on malaria, because they will be -- whatever the purchasing
power that exists now essentially will be doubled.

Q How much will that help HIV, because it's much more
expensive?

MR. BERGER: Well, it is -- there's a wide range of
initiatives in the budget on AIDS and HIV. This is particularly
directed towards the problem in the developing world, and particularly,
for example, in Africa, where this has become a problem of such
magnitude that it is affecting the stability of countries, the ability
for them to maintain economic viability. And both the assistance for
treatment of AIDS in the Third World, the $150 million this year, and
the vaccine program are simply part -- in a sense the international
part. I don't know whether Bruce or somebody wants to talk about that.

Q Sandy or Bruce, is this as much about distributing these
drugs in countries that need them and really can't afford to buy them?
Or is it really about R&D to come up with new vaccines, new treatments,
new medications?

MR. BERGER: It's about the latter -- I mean, it's about both.
This credit will only be available for new vaccines that are developed
as a result of the initiative. But in assessing whether or not to
invest X million dollars in developing a new malaria vaccine, companies
will know that there is not only whatever market they think is out there
by virtue of the countries themselves, but essentially times two.

Q Will he announce anything new about how the U.S. approaches
Iraq? I mean, we're nine years after the war and Saddam Hussein is
still in power. We don't have weapons inspectors on the ground.

MR. BERGER: The four pages I had on Iraq -- (laughter) --
Podesta cut, so we're probably not going to unfold a new Iraq policy.
But essentially, our policy remains the same. That is, we're going to
continue to contain the threat that Saddam poses to his neighbors, poses
to the region, while at the same time working with others to bring about
a regime change in Iraq.

Q What about the ABM or Comprehensive Test Ban treaties?

MR. BERGER: He will mention the development -- we continue to
develop a national missile defense system, that he will decide on later
this year. At the same time, we negotiate with the Russians in an
effort to accommodate the ABM treaty to these changes. He will mention
the Comprehensive Test Ban treaty, hoping that we can have, this year, a
bipartisan dialogue on the treaty that will create a greater degree of
common ground and understanding about what the treaty does and addresses
some of the criticisms from last year.

Q They won't specifically ask for another vote?

MR. BERGER: Not in the State of the Union speech itself, no.

Q Is he going to talk anymore about the Clinton Doctrine, the
notion of intervening in sovereign countries to prevent genocide or
other chaos?

MR. BERGER: Well, I wouldn't describe it exactly that way. I
mean, what has been called a doctrine is -- I think the President has
said that where our interest and our values are threatened -- as they
were in Kosovo, as they were in Bosnia, as they were Haiti, as they were
in Iraq -- and where we have the capacity to act, particularly with
others, we should be prepared to do so. But that doesn't mean that we
can -- the United States can intervene everyplace in the world where
there are wars or conflicts or turmoil.

Q Anything new on the Middle East that he might say tonight on
the peace talks?

MR. BERGER: I think he will keep very much within the spirit
of his admonition that less said and more done.

Q Is he going to meet with Barak in Davos?

MR. BERGER: I don't believe that Prime Minister Barak will be
in Davos. Chairman Arafat will be in Davos and I think we'll meet with
Chairman Arafat.

MR. BERGER: I think the plan now is to have -- because the
President is not going to be in Davos for a long period of time, and
there are a lot of leaders there, and a lot of private sector people of
real interest -- will be to have some sort of a larger reception in
which the President has an opportunity to talk to a number of people,
including certainly the King of Jordan.